Political Risk for Foreign Firms in the Western CIS - an Analysis on Belarus, Moldova, Russia and Ukraine*

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This report analyses the political risks of Belarus, Moldova, Russia and Ukraine from a foreign firm's point of view. Russia's increasing economic nationalism means increasing investment risk for foreign investors. The political climate in Ukraine is unfavourable to foreign investment but not to the extent that it would prevent or seriously restrict the possibilities of operating in the market. The political risk in Belarus is related to the centralisation of authority over economic policy. In Moldova, political risks for foreign investors are clearly present in this economically and politically problematic situation. All in all, political risk remains elevated in Belarus, Moldova, Russia and Ukraine

The main goal of this report is to analyse the political risk of these four markets from a foreign firm's point of view. The report consists of four independent chapters, which use a common conceptual approach in analysing the political risk of a foreign firm. Kari Liuhto analyses political risk in Russia (Chapter 2), Marika Heikkilä analyses the situation in Ukraine (Chapter 3) and Belarus (Chapter 4), and Eini Laaksonen analyses the risks faced in Moldova (Chapter 5).

2. Who doesn't risk, never gets to drink champagne- but how much one has to risk just to have a relaxed drink in Russia

Government-related risks: Russia is still developing democracy and its party system has not found its final form. An overwhelming concentration of power and a lack of genuine political debate prevail in Russia. Political parties play a secondary role, whereas the political limelights are occupied by the key political figures, who do not always represent the interests of their electorate but rather the interest of the state; be it that of the presidential administration, the government or some of the many security-related organisations. This elite repression does not exist in a large scale, but the prolonged hegemony of the ruling party (United Russia) may create situation where real political alternatives are no longer available.

The opinion polls show that the approval ratings of both the president and prime minister are exceptionally high, and therefore, one should not argue that elite illegitimacy exist in Russia as such. However, the main source of the illegitimacy originates from the fact that the State Duma lacks true opposition with an alternative political direction. The likelihood of immediate regime change is extremely low, even if the crisis has touched the Russian economy hard. Despite the prime minister having been forced to take unpopular decisions, the crisis has not collapsed the prime minister's popularity.

Russia's involvement in international organisations is not to become more active in the near future, on the contrary. For instance, Russia's over 15-year long road towards WTO membership received a rather surprising turnaround in June 2009, when Putin informed that Russia will join the WTO as a part of a customs union with Belarus and Kazakhstan. …